Only one table today, as I continue to try to figure out how elementary and secondary education staffing costs and teacher wages fit into state and local budget concerns in New Jersey. Are certified employee staffing salaries really escalating? Are they outstripping state and local budgets? I really am just trying to find the best measures of this apparent concern. Because state aid to schools is an intergovernmental transfer to local public school districts, certified employees are not a direct state expense and therefore not reported as such. Certified education employees are hired by local public school districts and paid for with a combination of the state aid and local property taxes. As such, it is a bit of a data struggle to figure out how best to tally the total cost of certified public school employees with respect to total state and local expenditures.

Here’s one shot at it. For this table, I use the NJDOE Certified Staffing files to tally the total costs of wages (not benefits) for certified education employees. I then divide the certified staffing wages by a) the total state and local expenditures for the same years and b) the current state and local expenditures for the same years as reported in the Census fiscal surveys (accessed through: http://slfdqs.taxpolicycenter.org/pages.cfm) . The findings are rather interesting – Elementary and Secondary Public School Certified Staffing Salaries have DECLINED as a percent of Total State and Local Expenditures from 1997 to 2007.

Let me be absolutely clear here – It does not always work well to combine such different data sources (individual staffing files on teacher salaries and reported aggregate budget figures). It should, logically – but data realities often thwart logic. One data source should be useful for characterizing the total salary expense on teachers, if, in fact, the data are truly comprehensive and the other should provide a reasonable estimate of total state and local expenditures.

Also, be assured that I understand fully that an alternative issue is whether teacher wages are increasing pressure on local school district budgets, which I do not address here. That is, what is the percent and change in percent of local public school budgets that are going to teacher wages (and benefits)? While an important and relevant question that is not what I am endeavoring to explore here (I address that question here – at the end of the post: https://schoolfinance101.wordpress.com/2010/03/17/just-the-facts-nj-taxes-teacher-salaries-and-spending-fluff/). Rather, I am exploring whether there is an empirical basis for arguing that salaries of certified public educators are a primary cause of stress to state and local budgets as a whole, in New Jersey. Please read previous posts(and comments sections) for a discussion of benefits.

Download PPT Slides (UPDATED): jersey-taxes-and-teacher-wages_r6

I’ll do my best not to editorialize too much here. Just the facts. Just a few slides in order to clarify where New Jersey stands in terms of taxes, long run economic position and growth, teacher salaries and the allocation of resources in school districts. These slides are in response to claims that;

1. New Jersey is the most taxed state in the nation,
2. our taxes are driving our economy into the ground and we’re falling way behind all other states,
3. our teacher salaries which are completely out of control are the reason why our taxes are out of control,
4. school districts don’t have to cut teachers to get their budgets in line because school districts waste most of their money on administration anyway.

Of course, these last two claims are entirely inconsistent, but often spouted by the same pundits (primarily talk radio).  If escalating teacher salaries were the cause of escalating costs, then teacher salaries – or teachers themselves – would need to be cut.

A few take home points from the slides below are:

Taxes

a) New Jersey is not, in fact, the highest taxed state in the nation. Our property taxes are high, but our income and sales taxes are modest by comparison. We’re also not number one in property taxes when all states are considered and when property taxes are measured as a percent of income.

• Note: There has been much media buzz this week about this report: http://www.taxfoundation.org/files/f&f_booklet_20100325.pdf which identifies New Jersey as #1 on this supposed same measure for 2008 (See Table 2). The cited source for their information is their own report, footnoted as: Tax Foundation Special Report, No. 163 (from August 2008: http://www.taxfoundation.org/files/sr163.pdf.) Table 1 of this report cites advance estimates of 2008 data which would appear to be from the same sources I have used. BUT… I have chosen a simple straightforward – directly cited comparison of final data and over multiple years. I have also disaggregated debt burdens from other taxes. Here is a PDF of the actual extract of the supposed same data. State & Local Finance Data .. By these data, which you can download yourself, NJ is NOT #1. That said, I have little reason to believe that taxfoundation.org would necessarily hold a NJ bias that would cause it to want to alter the stats to put NJ at #1.  The numbers just don’t match up.

Productivity

b) New Jersey remains high in gross state product (gross domestic product – state) per capita. Our growth has been only modest, but some of those states in our region that have outpaced us in recent years are actually states with higher tax burdens (NY). This is obviously not causal – ONE WAY OR THE OTHER! New Jersey also remains high in per capita income and has held pace over time despite apocalyptic claims that all of the state’s high income residents are exiting the state in droves.

Teacher Salaries

c) Teacher salaries have actually declined with respect to non-teacher wages over time in NJ, even when comparing wages for the same number of hours and weeks worked, and at same degree level and age.

d) Despite a mythology that all non-teachers work every day of every week of the year and that teachers work about half the year, non-teachers actually report working about 48 weeks per year compared to teachers 42 weeks. Teachers worked about 87% of the weeks worked by other non-teacher workers in NJ.

e) Comparing different data sources (something I prefer not to do), teachers at specific experience and degree levels appear to earn an annual wage about 67% of that of their non-teaching peers – annually. Okay, but they don’t work as many weeks. So, they earned 67% of the wage for working 87% of the time. Still a significant disparity.

f) Teachers’ annual income return to experience (or age)  is well less than that of non-teachers over much of their careers. Assuming teachers and non-teachers start at a similar wage at age 23 with a masters degree (around $50k), by age 40, the average non-teacher will be earning over $100k, while the average teacher will be approaching $80k .

Note regarding benefits & bias: Corcoran and Mishel point out here: http://epi.3cdn.net/05447667bb274f359e_zam6br3st.pdf

…overall K-12 teacher compensation was 27.5% greater than teacher wages alone, while overall professional compensation was 23.5% greater than professional wages. These differences in benefit shares translate into a benefits “bias”of 2.8 percentage points in 2006.

That is, benefits would close little of the overall gap in wages. Costrell and Podgursky show about a 5% (slightly less) differential (10% non-teachers, 15% teachers) in the value of pensions, a portion of benefits. This too would close only part of the teacher to non-teacher wage gap in New Jersey, even if we assume New Jersey benefits for teachers to be much greater than other employee benefits.

Growing Waste in School Budgets and The “Blob”

g) Classroom instructional spending as a share of budgets has remained relatively constant over time, and poor urban districts are in line with other NJ districts in this regard.

h) Total administrative expenses as a share of school district budgets have remained relatively constant for nearly 15 years and large poor urban and Abbott district administrative expenses are in line with (and lower than) other districts.

i) School level administrators are a relatively small share of school personnel. Not shown here, but also relevant is the fact that school level administrative salaries are only marginally higher than senior teacher salaries. As such, it is highly unlikely that one can cut substantially close budget gaps by cutting “administrative fat” alone.

This is a quick reply to NJ Left Behind’s highly suspect if not outright bogus NJ Surplus Drill-down. The crux of my response to NJ Left Behind’s summary of NJ school district surpluses, is that his/her analysis completely distorts the distribution of school district surpluses by not taking into account district size (enrollment). Of course the larger districts on average have larger surpluses. And Abbott districts on average are larger. Now, this is not uniformly the case, but for the most part, the largest surpluses are in larger districts (indeed there are some large districts with no surplus and some smaller districts with large surpluses).

The more appropriate way to look at these numbers is in per pupil terms. First, here are the per pupil Total Surpluses by district factor group and by Abbott status:

Interestingly, relative to districts in the same factor group (wealth-income category), Abbott districts seem to be carrying somewhat smaller per pupil surpluses. Further, total surpluses per pupil in Abbott districts on average are lower than surpluses in DFG J districts.

Here is the proposed state aid withholding (in other words, proposed CUTS) by district factor group and Abbott status:

Note in this case that state aid withholding is systematically higher in poorer district factor groups, though lower in Abbott districts relative to others in their factor group.

Finally, here is the withholding as a share of total surpluses:

So, the bottom line here is that the poorest Abbott districts are in fact taking the biggest hit in terms of the share of total surpluses that will be withheld from state aid. A somewhat different story from the deceptively oversimplified NJ Left Behind post.



I often hear talk radio pundits ranting about New Jersey’s supposed highest in the nation taxes – that New Jersey’s taxes are driving people out of the state. I’ll tackle the migration issues in a later post, but any attempted link to tax policy as a single driver is a stretch, to say the least.  I have previously addressed the absurdity of the “Small Business Survival Index,” as a standard for measuring whether or not a business should or would locate in a particular state.

I have also pointed out that within New Jersey,  property taxes as a share of income remain lower in higher wealth suburban communities, despite claims that those communities are suffering at the hands of decades of state funding being driven disproportionately to poor urban communities. Indeed, property taxes in the wealthier communities might be lower if they received more state aid – but they are already inequitably low compared to middle and lower wealth communities.  I have pointed out before that these same communities – high wealth suburbs – remain in control of the teacher salary game.

Those issues aside, here are a few graphs I made yesterday just out of curiosity using the data tool from taxpolicycenter.org.

So, what do we learn from these graphs?

1) When it comes to total taxes, New Jersey is not at the top. While higher than average, New Jersey is relatively close to the rest of the pack, and lower than some states. Overall, as in most other states, total taxes as a share of income have increased gradually over time.

2) When it comes to either sales or income taxes, New Jersey is not as high as other states in the region. Income taxes as a percent of income are, in fact, relatively low. Sales taxes as a percent of income are relatively low and have declined over time.

3) Property taxes as  a percent of income in New Jersey are highest in the figures above. Vermont and New Hampshire, not shown on property tax as percent of income, are both higher than New Jersey on that measure. New Jersey does not, by this measure, have the highest property taxes in the nation!

It is particularly important to understand that these three major sources of tax revenue should be considered collectively. It’s a package deal – a portfolio. Different states rely on different mixes of state level sales and income tax and local property tax (to oversimplify a bit). Local property tax revenues are responsive to different levels of aid received from the state to municipalities or local school districts (intergovernmental aid). Where local homeowner voters desire or expect a certain level of public service, but state aid comes up short, property taxes are typically used to make up the difference (though state imposed limits may restrict this option). Similarly, if increased aid is received but local spending preferences remain constant, local property taxes may be reduced in response to the aid.

Yeah… yeah… that’s the professor in me talking. The point here, as we know in New Jersey, is that property tax increases are used to make up for state aid shortfalls (whether municipal aid or school aid), and state aid increases can be used to slow growth in property taxes.

As the graphs above show, New Jersey is relatively high in its reliance on local property taxes. The reality is that this reliance on high property taxes reflects the demand for high quality public schools in those communities where local public schools are most reliant on property taxes (least reliant on state aid). In other words, the relatively high property tax burden in NJ is self-inflicted, and at a local level, across a multitude of relatively small municipalities – not large bureaucracies, but small communities.

Meanwhile, our state level taxes are far from out of line with neighboring states or the nation. And even when we add the property taxes to the state level taxes to evaluate our cumulative effort, New Jersey is not out of line, and certainly is not the most taxed state in the nation.

Note:

There is actually an upside to high reliance on property taxes to fund public schools. What we saw in the last, smaller, economic downturn (2001 to 2002) was that in states where education systems were most reliant on property taxes, public schools took a smaller budget hit than in states where education systems were most reliant on state general funds – especially where those general funds were heavily dependent on income tax revenues. Over time, state income tax receipts have become much more sensitive to economic downturn because a smaller share of income is wage income and a larger share is investment income & other non-wage income which tends to fluctuate more than wage income.  These days, state income tax receipts tend to drop most sharply in economic downturn, sales tax receipts much less, and local property tax revenues not much if at all. As such, it is a good idea for states to maintain a balanced portfolio of revenues. One might argue that New Jersey’s portfolio is a bit imbalanced. Heavy on property taxes and relatively light on sales taxes in particular.

Another interesting twist is that there exists little or no relationship between the percent of funding generated through local property taxes and the overall equity of a state’s school funding system. It all depends on how  the state aid allocations are distributed with respect to local revenues.

Not long ago, the transition teams for our new governor released their reports including an extensive report on K-12 education reform strategies. In the area of school finance, the report recommended:

(great synopsis at: http://njleftbehind.blogspot.com/2010/01/cheat-sheet-for-christies-educational.html)

1. Identify “immediate opportunities to eliminate waste and expenditures from practices…that are making no or only limited contribution to the quality of education for children.”
2. Review the efficacy of Corzine’s School Funding Reform Act where, famously, “the money follows the child.” Establish an “expert task force” to assess N.J.’s “overall funding system.”
3. Freeze salaries for all public employees, including pre K-12 teachers, for FY 2011.
4. Support and adopt A-15/S-1861, which eliminates public votes on school budgets that come in below cap.
5. Reduce costs in the “difficult area” of special education by limiting tuition increases at private out-of-district placements (currently 8-10% per year), shifting the burden of proof from local districts to parents when disputes arise regarding placements, and providing adequate state funding under IDEA to lift the financial burden off of local districts.
6. When school districts and local bargaining units reach an impasse, allow districts the ability to invoke a “last best offer,” a practice in effect until the McGreevey administration.
7. “Create regional salary guides to control escalating salary increases.”
8. Figure out how to fund recurring expenditures now underwritten by ARRA money. Closely track the 327 million dollars due Jersey of Phase II ARRA money in FY 2010 budgets.

I’ll probably have something to say on each of these topics at some point in time, but for now, what caught my eye was the emphasis throughout these recommendations on the notion that New Jersey teacher salaries are “escalating” out of control: http://www.northjersey.com/news/state/012210_Teacher_staff_salaries_may_be_frozen_Christie_says.html

There seems to be much finger pointing that the budget crunch faced by local public school districts in New Jersey is driven by our supposed tops-in-the-nation teacher salaries and inappropriate increases to teacher wages in tough economic times (where these increases have occurred as a function of an imbalanced mediation process).

Let’s take a reasoned, data-driven (since that’s what we’re supposed to do) look at the question of whether New Jersey teacher salaries have, in fact, escalated out of control, and if so, where – what school districts/locations – are New Jersey teacher salaries most out of line, or in line?

I offer the following comparison bases:

1) How do New Jersey teacher salaries compare presently and over time with salaries of comparably qualified teachers in other states sharing the same labor market? That is, how do Northern New Jersey salaries compare not with all of New York State, but with teachers in the New York metropolitan area within New York State? Similarly, how do teacher salaries compare in the Camden area with those in the Philadelphia metropolitan area?

Unfortunately most available reports only compare state averages, and it’s much harder to easily access comparable teacher data across states which share a labor market. One data set that makes this possible is the National Center for Education Statistics, Schools and Staffing Survey, which has been administered in 1987-88, 1990-91, 1993-94, 1999-00, 2003-04, 2007-08. This is a data set I use frequently, but one which requires a special license and involves disclosure approvals (so I can’t just go posting fun, detailed findings here. Darn!). I urge the current NJDOE to get a license for these data and explore the question of how NJ teacher salaries compare to those of comparable teachers in the same labor market. I’ve not looked yet at the Philadelphia labor market, but I have looked at NY, NJ, CT in the past and have generally found that NEW JERSEY TEACHER SALARIES AT COMPARABLE QUALIFICATIONS, LAG BEHIND NEW YORK SUBURBAN SALARIES, AND HAVE FALLEN FURTHER BEHIND OVER TIME. Recently, NJ salaries seem to have slipped behind Southern CT salaries. This is also true of administrator salaries. Ford Fessenden has written on this topic in the past:

http://www.nytimes.com/2007/06/10/nyregion/nyregionspecial2/10mainwe.html

As I noted to Ford Fessenden in this article, between 1998 and 2005 in particular, “The data suggest that New York is outbidding its neighbors for the best teachers and administrators.” (this was also based on analysis of statewide teacher database data, but my current NY data file only goes through 2003).

UPDATE: I finally got the chance to run some appropriate comparisons of NY and NJ teacher salaries which validate Ford Fessenden’s and my own previous findings. see: https://schoolfinance101.wordpress.com/2010/04/12/teacher-salaries-in-nj-and-ny-counties/

2)  How do New Jersey teacher salaries compare with salaries of non-teachers a) in the same labor market, b) at the same age, c) at the same degree level and d) for the same amount of hours worked per day and days worked per year?

I’ve blogged on this topic in the past, pointing out that in New Jersey, based on U.S. Census and American Community Survey data on income from wages, teachers in New Jersey actually used to be – at one time – compensated quite similarly to their non-teacher peers on an hourly basis. That is, back around 1990. But, over time, New Jersey teacher salaries have slid further behind their non-teacher peers  (though they have somewhat stronger average benefits packages. See my previous posts on teacher wages).

Here are my latest graphs on the topic – first, hourly wages over time by degree level and second, a modeled projection of teacher and non-teacher wages controlling for age, degree level, labormarket, hours worked and weeks worked. The first graph clearly shows that teacher salaries have slid from near 100% (near even) with non-teacher salaries back in 1990 for those with a BA only, to around 80% of the hourly wage of non-teachers with a BA. At other degree levels, teachers have fallen below 80%.

The second graph shows the projected annual wage for a 40 year old working 40 hours per week and 40 weeks per year, at the BA and MA level. This graph actually shows non-teachers with a BA surpassing teachers with an MA at the end of the period.

Note regarding benefits & bias: Corcoran and Mishel point out here: http://epi.3cdn.net/05447667bb274f359e_zam6br3st.pdf that

…overall K-12 teacher compensation was 27.5% greater than teacher wages alone, while overall professional compensation was 23.5% greater than professional wages. These differences in benefit shares translate into a benefits “bias”of 2.8 percentage points in 2006.

That is, benefits would close little of the overall gap in wages. Costrell and Podgursky show about a 5% (slightly less) differential (10% non-teachers, 15% teachers) in the value of pensions, a portion of benefits. This too would close only part of the teacher to non-teacher wage gap in New Jersey, even if we assume New Jersey benefits for teachers to be much greater than other employee benefits.

3) Where are those teacher salaries getting most out of line and what are the implications for property taxes? Is it really because the state has dumped so much funding into those Abbott districts? Or might it be because districts with high income families have chosen to adopt school district budgets which support higher salaries (essentially, canceling out the intended teacher recruitment edge produced by Abbott funding, if there ever was such a competitive edge)?

Because I love maps (see charter post), here are some maps of the school level relative competitiveness of teacher salaries – blue circles, overlaid on the median family income of school districts. The blue circles indicate the “relative competitiveness” of teacher salaries in a given school with a larger circle indicating that the actual salaries in that school are greater than the average predicted salaries for teachers with the degree and experience level of teachers in those schools. Schools are compared against others in their own labor market. So, a school identified as a large blue circle, or 1.05 value is a school where teacher salaries are 5% above the average expected salaries for those teachers in that labor market. Note that very low income, high minority urban schools would generally require higher salaries simply in order to recruit and retain comparable teachers. These maps, and competitiveness ratios include only New Jersey districts compared against other New Jersey districts. They do not include, for example, New York state districts which have much higher salaries for comparable teachers.

The first map shows the Newark area, and indeed Newark public schools do have relatively strong salaries, running at about 5% above expected. However, this margin is unlikely to yield teacher equity between Newark and its surroundings. Note that the many of the largest circles and highest competitiveness ratios – 1.12 to 1.14 – are in far more affluent suburbs like Millburn and Livingston. These self-inflicted higher salaries in districts that already provide more favorable working conditions create a competitive disadvantage for all other neighboring districts. The second map below shows the Camden area, where Camden teacher salaries are relatively non-competitive (as the district has increased quantities of staff rather than salaries over time) and where surrounding higher income suburbs have outpaced Camden city and other middle class suburbs.

This does all raise some fun questions regarding the property tax debate. One might argue that these high spenders are doing so on property taxes – high property taxes in fact. Actually, my previous analyses show that these wealthy communities with high teacher salaries actually have lower property taxes as a percent of income. If there is a squeeze going on here, that squeeze is at the juncture of the relatively lower teacher salaries and relatively higher local property tax burden (as a share of income) in middle to lower middle wealth communities who are trying to keep up with their affluent neighbors, but are less reliant on state aid than poor urban districts.

So, to conclude this rant – I’m having some trouble accepting the basic assumption that New Jersey teacher salaries are spiraling out of control, on either of the first two bases I discuss above. And further, I’m having some trouble accepting the notion that the spiraling salaries are a function of a statewide teachers’ union and strongly imbalanced mediation process. Rather, it would appear to me that very high income districts are simply choosing to spend what they can, and that it may be reasonable for these very districts to cut back, if their communities wish to do so. Actually, from a state policy perspective and especially from an equity perspective, if the current administration wishes to maintain the critical leverage provided by poverty-based funding to poor urban districts, the administration might wish to take a look at holding back the salary growth in the most affluent neighbors of the poorest urban districts. But, the notion that interventions are required to hold back all teacher salaries (with emphasis on those runaway urban districts) seems misguided.

See also: http://greatlakescenter.org/docs/Think_Twice/TT_Manhattan_Teacher%20Pay.pdf

for a discussion of technical problem’s with Jay Greene’s teacher salary analysis which is often used to argue that teachers are very well paid on an hourly basis. This is not directly relevant herein, because the analysis above deals with NJ teachers specifically, and uses more appropriate data for such analysis (the same data used by the National Center for Education Statistics for estimation of regional wage variation and for estimating teacher wages relative to other professional wages here: https://bush.tamu.edu/research/workingpapers/ltaylor/Comparing_Teacher_Salaries.pdf )